The Cruise Industry is Riding High
Cruising - As Good as it Gets?
Carnival Corp's most recent quarterly results, as well the resulting comments from company executives raised some eyebrows. The company reported better than expected profits, with Q4, 2010 coming in at 31 cents per share even after a charge of 7 cents for the Carnival Splendor fire.
Despite the contradiction in terms, it actually comes as no surprise that the cruise industry continues to "do better than expected." Cruising always shines during bleak economic times because of the "value proposition" cruise lines offer - a "fill our beds no matter what" formula where they lower prices as much as needed.
But this time it's different - we were told by Carnival executives. Carnival chief financial officer Howard Frank actually made the statement, "In my mind, capacity has outstripped demand." For the first time in history a cruise line is saying it has more cabins available than it can sell - easily. CEO Micky Arison followed up by saying the company's plan to just add two or three new ships per year is still in place, significantly slower growth than in the past.
If you listen to all of this rhetoric, also heard from Royal Caribbean, you believe that we will never see another new cruise ship built the size of Oasis/Allure. You believe that Queen Mary 2 will remain the largest Ocean Liner ever built for the rest of time. You believe that the future of cruising is keeping ships small enough to be able to re-deploy them to new places on demand - rather than requiring the rigorous expansion of port facilities in Caribbean islands to accommodate ships like Oasis of the Seas.
But let's ask this question for just a second. Whenever you hear the phrase, "This time it's different," how often is anything really different? Have we really reached the apex of cruising? Is this "as good as it gets?"
Call me skeptical, but gut tells me that the cruise industry is still growing, and that it will have another growth spurt within the decade.
Why? NCL's Norwegian Epic turned into a slight disappointment, largely because the ship was hurried into service after cost overruns at the shipyard. The result was a ship that cost more than it should have and that fell short in a few significant areas. Sometimes ships are like Hollywood movies; just because they are bigger and more spectacular it doesn't mean they will be a hit. But I also believe that Epic has shown the industry a few things that will become very useful knowledge when the economy turns around again.
First, it showed us that there is a distinct market for solo cruiser staterooms. Cruise lines can sell tiny inside cabins at premium prices as long as they make them for solo cruisers. The potential for this largely untapped market is just beginning to be understood. Epic also taught us that entertainment can be a significant draw for a cruise ship, and Oasis/Allure has also shown this to be true. Finally, Epic showed us what not to do in many cases - do not skimp on deck space, do not make people stand in long lines just to see a free show. And be careful how you design your bathrooms.
Norwegian Epic's per diems have dropped significantly, with the upcoming seven day cruises from Barcelona selling as low as $799 per person for a balcony stateroom. But the success of Oasis is indisputable, and it's the biggest cruise ship in the world. The question is whether it will remain a huge success solely because it is so unique, or because of what it offers? I tend to believe the latter.
Best of all, the pricing for Oasis/Allure has remained stable at a premium to the rest of the industry for well over a year now. The predicted drop in prices that was supposed to accompany the introduction of Allure never materialized.
But what these three ships have taught is that ships CAN be destinations unto themselves in the entertainment realm, and that concept is just beginning to catch on with the general public. These people have also cut back. Once the economy turns around we just might see that these new ships have taught us things we didn't even realize we were learning.
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